What credit score do I need to buy a home?

What credit score do I need to buy a home?

For most people looking to buy a new home, once they’ve found the perfect house, they then need to secure a home loan. When you are starting the application process, you could have some anxious moments about how lenders will view your home loan application. Typically lenders look at factors such as age, occupation and income. In addition to those, your credit score plays an important role in evaluating your application.

A credit score is a number used by lenders to assess your creditworthiness. Simply put, it is a way for lenders to assure themselves of your ability to repay the loan comfortably. You need to understand the factors that affect your credit score, and also to know what is a good credit score to buy a home.

What is the credit score required to buy a house in Australia?

Your credit score signifies your ability to repay a loan on time and provides a gauge of any future risk of default, based on your credit history.

Credit score numbers are between 0 and 1,000, and the higher the number, the better your credit score. Each credit measuring body has different parameters to measure and evaluate credit scores. A good score increases your chances of getting approval on your home loan application.

Most Australian lenders don’t make their credit criteria public which makes finding out the exact credit score you need to qualify for a home loan not easy. To complicate matters further, most lenders don’t depend solely on your credit score to measure your risk; they also rely on their own internal credit evaluation yardsticks.

So, what is the minimum credit score to buy a house, you might wonder. While it is difficult to put your finger on the exact cut-off mark to qualify for a home loan, some benchmarks help to determine if your score will make the cut. 

Below 509 (below average) – If your score is below 509, you likely fall into the high-risk category, and conventional lenders may be reluctant to grant you a home loan. There are a few lenders who might still consider your application even with a low score, but the interest rates are usually very high. We’ll discuss ways to get a home loan with a low credit score a little later.

510 to 621 (average) – A credit score in this bracket usually means that you have some negative marks in your file, and lenders might ask for more information before they’ll consider your loan application.

622 to 725 (good) – This is a good place to start from, and a number in this range vastly improves your chances of getting approval on your home loan application. You should also have access to lower interest rates than those with average credit scores.

726 to 832 (very good) – Congratulations, you’re part of the top 40 per cent of creditworthy Australians. Most lenders will be eager to have your business and will gladly offer you a home loan.

833 to 1200 (excellent) – An excellent score is one that lenders consider to be extremely low risk, and lenders will be keen to offer you a loan. Approvals are generally quick, and you will have more options to choose from than those with lower scores.

Can I get a home loan with a low credit score?

The chances of getting approval on your home loan application with a score above 600 are high. But can you still get a home loan if your credit score is below 500? Yes, you’re still eligible for a home loan but only from a specialist or non-conforming lender. These are lenders who offer what is known as bad credit home loans to high-risk borrowers with low credit scores. Bad credit home loans are similar to regular home loans, but with much higher interest rates and less choice home loan options. These limitations are due to the risk associated with lending to people with low credit scores which are perceived as greater for the lender.

Bad credit lenders still have their own internal guidelines regarding which loan application they approve, which often depends on a variety of factors. It may be helpful to use the services of a mortgage broker in such a scenario, as they can suggest which bank is likely to have a home loan product that suits your needs. Applying with a lender directly and getting rejected will negatively impact your credit score further because each application submitted will reflect on your credit file.

What’s the minimum credit score for a home improvement loan?

Not all home loan applications are for the purchase of a home or an investment property. Perhaps you’re looking to finance a home renovation project and wish to borrow money. In this case, applying for a home equity loan or home equity line of credit is one way of getting the money you need to complete your renovation. Once again, your credit score is a key factor considered by lenders at the time of evaluating whether you qualify for a home equity loan.

A score between 660 and 700 is considered acceptable, but some lenders might charge you a higher interest rate. Some may even wish to look at other financial factors, such as your overall debt, your debt-to-income (DTI) ratio or the amount of equity you currently hold.

A DTI ratio gives an idea of your total monthly debt payments, and it is calculated based on how much you earn and how much you spend on your recurring debts and liabilities. These include credit cards, existing loans, tax debt, etc. Most lenders look for a low DTI ratio, nothing more than 40 to 43 per cent of your monthly gross income. If you have a low credit score, then a low DTI can work in your favour and give the lender more confidence to offer you the loan.

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What is a bad credit home loan?

A bad credit home loan is a mortgage for people with a low credit score. Lenders regard bad credit borrowers as riskier than ‘vanilla’ borrowers, so they tend to charge higher interest rates for bad credit home loans.

If you want a bad credit home loan, you’re more likely to get approved by a small non-bank lender than by a big four bank or another mainstream lender.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks. 

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

How much deposit do I need for a home loan from NAB?

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

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